On December 1, Ethereum 2.0 (also referred to as ETH 2 or “Serenity” ) launched, unveiling the new proof of stake (PoS) mechanism and improving the speed, efficiency, and scalability of the Ethereum network.
Ryan Daws from Developer reported, “The Ethereum 2.0 beacon chain launched with more than 21,000 validators around the globe and over 674,000 ETH staked. For a six-year-old project, the growth, community, and excitement around Ethereum is astounding.”
The launch of Ethereum 2.0 was monumental for the entire crypto community: not just Ethereum. This new platform with its forward-thinking developments promises to be a faster, more reliable blockchain that will push the industry forward.
Below, we’re exploring more about what this launch means for the future of Ethereum and Carnomaly.
Proof of Stake (PoS), Shard Chains, and More
Every blockchain requires decentralized validation for all transactions. Ethereum 1.0 relied upon the consensus mechanism proof of work (PoW).
This required miners to solve mathematical formulas using hardware processing power in order to verify the latest transactions. As miners solve formulas, new transactions are added to extend the blockchain and, as a result, they are rewarded with Ethereum tokens.
However, the introduction of the Beacon Chain and its proof of stake (PoS) allows users to verify transactions differently. Now, “transaction validators” — not miners — can stake cryptocurrency as an opportunity to verify a transaction. Based on how much crypto they hold (and how long they’ve held it), these transaction validators can be selected to propose a new block. Other validators are then needed to attest that they have seen a block. Once enough validators attest, a block is added. Validators then are rewarded for the successful block proposition through a process called “minting” or “forging.”
The launch has helped bolster Ethereum’s earnings. Martin Young wrote for AltCoin Buzz that,
“The ETH 2.0 Launchpad is currently reporting an annual percentage yield of 12.7% for those that have staked so far. This will decrease over time as more ETH is locked up to secure the network. With 5 million ETH staked, the APY falls to 7% and when there is 10 million ETH locked up, earnings are 4.9%.
This may not sound like a lot, but compared to traditional banks which are offering zero or negative interest rates, it is practically free earnings on an asset that has increased in value by almost 400% this year alone.”
The new Beacon Chain itself doesn’t change anything about the day-to-day function for Ethereum. According to Ethereum, it will simply coordinate the network and will manage this new proof-of-stake protocol for both itself and all of the future Ethereum shard chains.
What’s the benefit to PoS?
PoS requires far less energy than PoW, as it effectively separates exacting computer processing from the consensus algorithm. In short, it cuts down on the amount of computing power necessary to secure the blockchain.
Ethereum 2.0: What's next?
Ethereum founder Vitalik Buterin revealed the updated roadmap for Ethereum soon after the latest Ethereum 2.0 release on December 1. The main point Ethereum emphasizes is that Ethereum 2.0 isn’t a single update: it’s a series of developments that are in the works. December 1 simply marked the starting point.
While the updated roadmap hasn’t changed drastically from earlier in the year, it did clear up some questions about when we can expect the complete transition to PoS and when to expect shard chains as well as the transition away from Mainnet. Currently, Ethereum is projecting shard chains to launch in 2021, and the docking of the Mainnet with the Beacon Chain at some point in 2022.
The fact that we are in Phase 0 of Ethereum 2.0’s rollout shows just how much is still left to develop. While a critical first step, the second upgrade is even more important, as Ethereum will finally remove proof-of-work altogether. Phase 0 is the foundation for what lies ahead — as the Ethereum team puts it: it’s the “new engine” of the future spacecraft.
Explore Ethereum’s vision, view the roadmap, and learn more about the issues of decentralized scaling here.
Ethereum 2.0 and the Future of Carnomaly’s Solutions
At Carnomaly, we believe Ethereum is leading the way for the future of cryptocurrency and blockchain technology; it’s why we use the Ethereum network and the ERC-20 smart contract to host the CARR token.
As development continues for CarrDefi, we believe Ethereum 2.0 presents even more opportunities within the DeFi space.
Another improvement Ethereum 2.0 brings is its possibilities for DeFi.
Post-launch, Ethereum experienced some price volatility. But the impact was strongly felt in DeFi. According to Antonio Madeira from CoinTelegraph,
“ETH 2.0 was a crucial element driving the growth of total value locked in (DeFi) projects and this trend is likely to continue.” Projections show participation in DeFi markets will continue to rise as DeFi builders can improve their offerings by ‘order of magnitude.'”
Madeira also notes that,
“TVL was just below $10 billion at the beginning of November and now sits at $13.4 billion after a slight correction from its all-time high of $14.1 billion, according to data from DeFiPulse. So it has grown significantly after November 27, several days before the launch of the Beacon chain. The growth is fueled by a newfound trust in the development efforts being put into Ethereum and the longevity of DeFi.”
99% of Ethereum’s transaction volume is regarding DeFi protocols; this is proof that DeFi’s yields are still massively attractive to users even with Ethereum 2.0’s staking rewards. The launch of Ethereum 2.0 could also serve to bring about a more conservative, “institutional” audience such as those in the finance sector and other traditional industries, opening up DeFi to new and continued growth.
Now is an exciting time to build solutions powered by Ethereum’s network. As we continue to develop Carnomaly, CarrChain, and CarrDefi, we are staying up-to-date on how Ethereum 2.0’s updates can improve our own.